The IMF's Jurisdiction Over the Capital Account - Reviewing the Role of Surveillance in Managing Cross-Border Capital Flows

In 1941, John Maynard Keynes noted that “[n]othing is more certain than that the movement of capital funds must be regulated; which in itself will involve far-reaching departures from laissez-faire arrangements”. 77 years later, the international regulation of capital movements appears everything but certain. The purpose of this paper is to review the IMF's jurisdiction over the capital account. While the IMF has become the most important international financial institution (IFIs) to oversee international flows of capital, it has surprisingly little formal power to influence its members' capital flow measures (CFMs). This paper revisits the case for as well as against strengthening the IMF's (formal) jurisdiction over countries' capital account. We also link this debate to the ongoing discussion in policy-making circles. Moving forward, the IMF could play more central and powerful a role in determining what capital account policies support or undermine the stability of its members and the system as a whole. As we show in this paper, while reluctant to legally empower the Fund, states have endorsed a gradual expansion of its bilateral and multilateral surveillance mandate, thereby implicitly favouring “soft” law over “hard” law solutions. An important question is thus whether the Fund's surveillance functions and the mechanisms of peer pressure and moral suasion that its efficacy relies upon, are adequate means for the IMF to fulfil its mandate? Without providing an exhaustive answer, the paper provides an overview of the debate and makes some suggestions on the way forward